As an instructor here at ProSchools, I’ve often been asked by students who are thinking about becoming a part of, or who have just entered the mortgage industry after completion of the Safe Comprehensive 20 hr Pre licensing Education from us here at ProSchools, to explain the differences between types of mortgage orientation companies.
Today, while reading an email forwarded to me by our Regulatory Department, I stumbled upon what I felt was interesting reading, an article called: “CFPB releases mortgage origination examination procedures” found in the Second Quarter 2012 issue of "Consumer Compliance Outlook",
and in that article, I found a section that I felt by sharing with anyone interested, would help to explain the difference between retail, wholesale and correspondent lending channels.
Mortgage lending generally occurs through retail, wholesale, or correspondent lending channels. Sometimes there are no clear lines of demarcation among the channels, as a participant may operate in more than one of them. Each channel is described in more detail below.
In the retail channel, the lender conducts the origination process directly with the consumer, either in person or through an online application. An employee of the lender, generally called a loan officer, solicits the loan, takes the application, and tracks the application through to the closing process.
In the wholesale channel, a mortgage broker solicits the loan and takes the application from the consumer. Mortgage brokers are independent contractors and are not employees of the lender. The broker establishes relationships with multiple mortgage lenders and offers different mortgage loan products from these lenders. Mortgage brokers generally do not make underwriting decisions and do not actually fund the loans. In this channel, it is the mortgage lender that makes the underwriting decision, based on information provided by the broker. These mortgage lenders, called wholesale lenders, often are divisions of larger depository institutions. Generally, a wholesale lender requires a broker to enter into a wholesale lending agreement before the broker may originate loans on the lender’s behalf.
In a variant of standard wholesale mortgage originations, some brokers “table fund” loans. In a table-funded transaction, the mortgage broker closes the loan as the lender of record and then assigns the loan to a purchaser at or immediately after the closing. The loan purchaser provides the funding for the loan, but the documents name the mortgage broker as the creditor.
Correspondent lending, a hybrid of retail channel and wholesale channel lending, often features smaller institutions, acting as correspondent lenders. Correspondent lenders are the primary interface with consumers, conducting all steps in the mortgage origination process and funding their own loans. They generally originate and deliver loans pursuant to underwriting standards set by other lenders or investors, usually larger depository lenders, upon advance commitment on price. In addition to soliciting consumers directly, correspondent lenders may receive applications and mortgage documents from mortgage brokers and subsequently speak directly with the consumer. Generally, a wholesale lender requires a correspondent to enter into a written correspondent lending agreement before the correspondent may originate loans for sale to the wholesale lender.
Hopefully this information helped to clarify any questions you have had and couldn't find anyone who could simply explain the differences, and can help you in making a wise decision when looking for the company you will choose to start or resume your mortgage lending career with.